Foreign Transactions

1. Many countries today have exchange rates that float somewhat freely against other countries. How can a business manager be responsible for foreign transactions forecast exchange rates to better manage foreign exchange exposure?

Be sure to cite your source and provide numeric examples.

2. Why do some regions promote unrestricted trade within their region but restrict trade that crosses the region's boundaries? Why would they not extend the advantages of intraregion trade by extending the same privileges to countries outside their region? If you are an importer and must pay the exporter in their currency, how can you manage the risk that this currency may increase in value before the date when you make the payment in their currency?

Solution Preview

In current business environment, companies are freely doing international business. Exchange rates of one country are also changing freely against other country (Foreign Exchange Management, 2010). It is the responsibility of business manager to effectively forecast the exchange rate to better manage the foreign exchange exposure. Different ways are there by which managers can effectively manage foreign exchange exposure. These are as below:

A manager can manage foreign exchange exposure by developing knowledge about the foreign exchange risk such as; do firm have any currency borrowings, how, when and where firms can face foreign exchange risk, and the impact of these transactions on balance sheet (Foreign Exchange Management, 2010). After knowing about the areas in which a firm can face foreign exchange risk, managers can try to quantify these risks. To quantify risk, different aspects can be checked by managers ...

Solution Summary

Foreign Transactions are emphasized. References are also list to promote research.